The Fault in Ourselves

August 22, 2016May 22, 2017 / 416Investor / 2 Comments

“The fault, dear investor, is not in our stars- and not in our stocks- but in ourselves…”

-Benjamin Graham

Winner of the Nobel Prize in Economics, Daniel Kahneman fascinatingly explains the fault that is in our intuition, biases, decision making, and sheds light to rationality. In economics and finance, we are taught theories that assume rationality and well-informed decision making of individuals, but we must learn these theories with much caution, as Kahneman’s Thinking Fast and Slow illustrates that human decision-making is indeed more flawed in reality, and certainly more than we notice. I will illustrate a few of his examples below that will (hopefully) spark your interest, and likely bend your mind, as it did to me.

To begin, Kahneman explains the mind as two systems, System 1 which is intuition (thinking fast) and System 2, which is your analytical system (thinking slow). For instance, the last time you were mad over something small and had to embarrassingly apologize afterwards, might have been due to your System 1, thinking (too) fast. Your emotions clouded your System 2 (your analyzing system) from working and you acted irrationally. Note that your System 2 is also quite “lazy”, so the majority of the time, you’re on auto-pilot with System 1, and (thankfully) most of the time it’s right. But other times when System 2 is needed, and fails to show up or to properly analyze, decision-making results can be devastating.

Here’s a quick test of your systems.

What’s 2 x 2? What’s 2+2?

Right away you knew the answer for both were 4 (that’s your intuitive System 1). Now:

What’s 28 x 9? What’s 38 x 17?

Your pupils moderately dilated, your blood pressure slightly increased; your System 2 was engaged into computing the answer, as your System 1 was unable to quickly solve it. For some, it is possible that the latter questions came intuitively via their System 1; they’ve practiced a great deal of mathematics that allowed them to generate the answer automatically. For those who had to employ their lazy System 2, don’t you regret not practicing math a little more when you were younger? I sure do…(252, 646, btw).

Speaking of regret; Kahneman defines it as an emotion and a punishment we do to ourselves. Frequently, we lag in our decision making due to the fear of regret. It stems from a deviation from the norm, or the default position (p.348). For instance, when you buy a stock the default is to hold it, when you enter a relationship, the default is to stay, when you finish seeing your friends, the default is to say goodbye; selling a stock too early, ending a relationship badly and even not saying goodbye can produce regret. Here’s another example: You’re the coach of a team that just badly lost your last game. You’re expected to make a change in players or strategy; failing to do so will produce regret (p.348). Notice how here, a specific action is the default, deviating from that will produce unpleasant emotions. Regret does indeed affect the decision of many, but there is good news: people generally anticipate more regret than they will actually experience, this is because we underestimate the efficacy of our psychological defences (p.352).

Here’s an unnoticeable pitfall people tend to make that may lead to regret, it’s called the The Sunk Cost Fallacy. More often than not, this fallacy makes us stay in things longer than we should. A bad job, a poor performing stock with no turnaround in sight; we would rather continue wasting our resources in a failing project than to stop, admit defeat and have a bad stain in our record .

Somewhat related to the Sunk Cost Fallacy is the disposition effect. A (unfortunately) real example for many investors is the following: when choosing to sell stocks in their portfolio, often times they choose to sell the winning stocks rather than the losers; they want to add a win to their record, instead of closing out losing stocks which would add a loss. Simply put it, gaining is pleasure and losing is pain, and we would much rather choose pleasure than pain. But, pleasure does come with its price, and in this case choosing purely based on a current winner and loser can be irrational and devastating. According to Kahneman, you should have a thorough analysis of your portfolio and sell the stock that is less likely to perform well in the future, not whether it is a winner or loser.

Here’s another pitfall that can significantly influence our optimism or pessimism when decision-making is “Framing“. Consider the following scenario:

How would you feel if I said the following before you entered a life-saving surgery:

90% of the people who receive this surgery survive.

Now If I told you this:

10% of people who receive this surgery die.

Both statements have the same probability of success-failure, but the way it was framed, did indeed give you different mental pictures. Another example of framing within Thinking Fast and Slow is the following:

You receive $70

Would you rather:

Keep $30 or Lose $40

As you’ve noticed, both options are objectively the same, but most individuals prefer the keeping $30 than the losing $40 option. Being able to reframe this question objectively, and not emotion-bound, takes much effort of your System 2, and since it efforts exhausts our energy, we passively accept decision problems as they are framed (p. 367).

Here’s a final- shortened example of framing that will bend your mind, it comes straight from the framing experiment conducted by Kahneman and his friend, Amos (p.368):

Imagine that the United States is preparing for an outbreak of some unknown disease. It is expected to kill 600 people, but there are two types of action plan that can be implemented to fight this disease:

-Action Plan A: 200 people will be saved.

-Action Plan B: There is a one-third chance that 600 people will be saved, and a two-thirds probability that no one will be saved.

What’s your choice? Think carefully. The majority of respondents chose A; taking the sure option rather than the gamble.

Now the experiment is framed differently. Consider the following options:

-Action Plan A: 400 people will die.

-Action Plan B: There is a one-third probability that nobody will die and a two-thirds probability that 600 people will die.

What’s your choice? Again, think carefully. The majority of respondents chose B, as you may have as well. “Decision makers tend to prefer a sure thing over a gamble when the outcomes are good. They tend to reject the sure thing and accept the gamble when both outcomes are bad”(p.368). Note how you’ve accepted a gamble with a 67% (rounded) chance of failure, even though it’s a bad gamble (numerically), it seemed like a good choice in this case.

Here’s the interesting part: You chose to save 200 lives for sure (Action Plan A) in the first question, and chose to gamble with Action Plan B, rather than accept 400 deaths in the second; there’s an inconsistency in the choices you make. Think about it…

We could go on forever in discussing the biases and faults in our intuition provided in this book (there’s a lot more), but let’s end with the Anchoring Effect. This happens when “people consider a particular value for an unknown quantity before estimating it” (p.119). For instance, if you are looking to purchase a house, you are likely to be influenced by the asking price (the anchor). You would feel a price of $1 million is expensive if the asking price was $700k. On the contrary, you would feel a price of $1 million is cheap if the asking price was $1.3 million. If I said the number 30 and asked you to provide an estimate of Shakespeare’s age at death, you’ll likely give a lower number than if I said the number 90. You’ll be inclined to use the number provided as an anchor and work your way up or down from it. This shows that we are susceptible to subconscious biases from an anchor and recognizing that can help us avoid poor decisions. This technique is used in sales and negotiations, so next time you’re negotiating a price, make sure you don’t get anchored by a number.

When you choose to read this book, you’ll learn valuable rationality lessons such as the law of small numbers, optimistic biases, the possibility effect and much, much more in Kahneman’s astonishing literature. After giving Thinking Fast and Slow a read, your thought process and decision-making will surely be enriched, as mine was.

Much of the recognition of our intuitive faults will seem unnatural to do, and indeed hard to consistently notice when we act irrationally. But nothing good comes easy. By being aware that it is easy to fall into the traps of our own irrational decision-making; we can avoid making potentially devastating mistakes, and make more sound decisions. For the investor, the chief problem, and even his worst enemy is very likely to be himself. You should give this one a read, you probably won’t regret it 😉 Find it here.

5 Must-Read Investing Books

July 29, 2016May 22, 2017 / 416Investor / 2 Comments

The most successful leaders always had one thing in common: they never stopped learning. As Charlie Munger, Vice Chairman of Berkshire Hathaway puts it:

“Those who keep learning will keep rising in life“

If you’re looking on improving your investing knowledge, you’ve come to the right place! Here are the 5 must-read investing books:

1. The Intelligent Investor by Benjamin Graham

Benjamin Graham forever changed the investing world with this timeless contribution. He builds the foundation of value investing by providing the concept of Mr. Market, defensive investing and margin of safety. This iconic book is considered by many the bible of investing, and for Warren Buffett:

“I picked up a copy of The Intelligent Investor. It not only changed my investment philosophy, it really changed my whole life- I’d be a different person in a different place if I hadn’t seen that book…it was Ben’s ideas that sent me down the right path.”

Pick up your copy of this classic: here.

2. The Most Important Thing Illuminated by Howard Marks

Howard Marks shares his thoughts on value investing in this mind-shattering book. He gets straight to the point on investing subjects such as second-level thinking, market efficiencies, value, contrarianism, risk, randomness and the other aspects that make up the 20 most important things. To make this book even better, there are even commentaries from other leading investing managers such as Seth Klarman, Christopher Davis and Joel Greenblatt. Marks’ work is even praised by legendary founder and former CEO of The Vanguard Group, John C. Bogle:

“Few books on investing match the high standards set by Howard Marks in The Most Important Thing…If you seek to avoid the pitfalls of investing, you must read this book!”

Find this invaluable book: here.

3. A Random Walk Down Wall Street by Burton G. Malkiel

Burton G. Malkiel’s best seller is jam-packed with quality investment insights and financial history. It takes a look at stocks and their values, analyzes both fundamental and technical analysis while comparing them to the random walk theory. Furthermore, he explores the concepts of EMH (efficient market hypothesis), smart-beta and rebalancing. He puts much emphasis on indexing and diversification through no-load, low cost funds and ETFs. The later chapters consists of personal finance and investing strategies for different age groups. Whether you’re a starter or expert in investing, this book is a must-read. Find it: here.

4. Common Stocks and Uncommon Profits by Philip A. Fisher

Known as a pioneer of Growth Investing, Philip A. Fisher’s contribution to the investing world will not be forgotten. In this book, consisting of 3 parts, he lays out the a general description in what to look for in stocks, and when to buy. He opens the book with his concept of “Scuttlebutt”, then puts in 15 detailed points to look for in common stocks, as well as 10 investor don’ts. In the second part, Fisher outlines his 4 dimensions in which he describes cues to look for in companies, such as the company’s superiority in production, research, marketing and financial skills. He notes the importance of employees and management, investment characteristics of certain businesses, conservative investments and much more. Fisher closes the book with his philosophy along with its evolution that has made him one of the most influential investors. Find this book: here.

5. Technical Analysis of the Financial Markets by John J. Murphy

John J. Murphy provides the fundamentals of technical analysis in simple enough terms for anyone to understand. You’ll learn the trends and essentials of chart analysis. This book gives excellent graphical examples of various price patterns and reversals. Furthermore, it teaches the basic methods of analysis, you’ll learn about moving averages, MACD, RSI, Bollinger Bands, and all the other fancy technical indicator terms. Whether you’re a beginner or experienced investor, this is a classic for the technical investor. Find it: here.

Through chances various, through all vicissitudes, we make our way…

-Aeneid

Those are the first words printed on The Intelligent Investor. I read this timeless classic some years ago and this quote made an impression on me. I’ve revisited it twice since, and every time I read it, not only does it get better, but I appreciate this quote more and more.

If it’s your very first time reading The Intelligent Investor, know that I am envious of you, the feeling of learning new knowledge of this quality is rare, and no words can describe that state of enlightenment. I invite you take your time and enjoy the invaluable information you will gain. I hope you will enjoy it as much as I have, and that you will revisit it in years to come.

Kickstart your Day with 5 Funny Economics Jokes

July 21, 2016May 22, 2017 / 416Investor / Leave a comment

Here are some economic jokes that will brighten up your day at work, or give your boss a good laugh. And if you’re in the economic discipline like myself, it doesn’t hurt to laugh at yourself once a in a while. Since these jokes have been passed around and modified, they might differ from the “original”, but the core is still the same:

1. A chemist, a physicist and an economist are stuck on a deserted island with no food. A can of food floats ashore. The physicist says “let’s smash it open with a rock”. The chemist says “let’s build a fire, and heat it first”. The economist says “let’s assume that we have a can opener…”

2. Economic forecasters assume everything, except for responsibility.

3. A mathematician, an accountant and an economist all apply for the same job. The interviewer calls in the mathematician and asks: “What do two plus two equal?” The mathematician replies “Four.” The interviewer asks “Four, exactly?” The mathematician firmly looks at the interviewer and says “Yes, four, exactly.”

It’s the accountant’s turn, the same question is asked: “What do two plus two equal?” The accountant answers “On average, four – deviated around ten percent, but on average, four.”

Then the interviewer calls in the economist, tells him to sit down and asks the same question: “What do two plus two equal?” The economist gets up, locks the door, closes the shade, sits down right next to the interviewer and says “What do you want it to equal?”

4. If you teach a parrot to say “supply and demand”, you have an economist.

5. A chemist, an engineer and an economist are shipwrecked with no food except for a single can of soup. They have no tools, and can’t afford to spill the insides as it is their only means of survival. The chemist sets up evaporating pans to collect caustic salts to etch the can lid through. The engineer piles sand to build a drop, that with precise calculation will be tall enough to crack the can open without spilling the insides. And the economist lays down on the beach, relaxing and laughing at them. After a day’s hot labor with nothing achieved, frustrated, the chemist, bursts out at the economist and says, “Okay, you’re so smart, how would you do it?!?!” The economist picks up the can and stands up straight, shining with confidence he presents the can grandly to the other two, and says, “ASSUME this can is open.”

All jokes aside, economics is a great discipline. Many economists have changed the world with their lifelong contributions, notably Adam Smith, John Maynard Keynes, John Kenneth Galbraith and many more. If you are interested in reading a book to understand the very basics of economics, I would recommend: Basic Economics by Thomas Sowell. It was well put together and covered much of the essentials for understanding the basics and flow of the economy. I will have a review for it soon. Meanwhile, you can find the book here. Of course, JMO (just my opinion).

We all love ourselves more than other people, but care more about their opinion than our own.

-Marcus Aurelius

For starters: Index and ETFs investing in your 20s according to Burton G. Malkiel

July 21, 2016May 25, 2017 / 416Investor / 2 Comments

Suppose you are new to investing, and would like to participate in the market but don’t have the time or knowledge to research individual stocks (or you’re just lazy), what should you do? Let’s explore a few options from the book: A Random Walk Down Wall Street by Burton G. Malkiel. For this article, let’s focus on two things, the importance of low fees and the asset allocation for the folks in their 20s according to Burton G. Malkiel.

HIGH FEES? WE DON’T NEED NO STINKIN’ HIGH FEES.

Now before you purchase that mutual fund your bank advisor is trying shove down your throat, consider looking at the different expense fees. Recently, many funds have come under criticism for their high fees and poor performance (compared to the benchmark), and rightfully so. Be aware of the MER, TER, front and back loads on these funds. A MER (Management Expense Ratio); is whats going to cost you for them to manage your money per year. A simple example is the following:

You find a nice mutual fund you’d like to invest in, and decide to place your hard earned $10,000 into that fund with an MER of 2.5% (this is high, and quite common). Essentially, you’ll lose $250 just to management expense fees. Now let’s assume the benchmark is the market, and it’s returning about 7%. Simply put it, you better hope your fund returns at least 9.5% just to get even with the market. Note that many funds, after fees don’t consistently outperform the market.

Now I know what you’re thinking, what’s 2.5% to you? Don’t think 2.5% is a lot?

Consider the following:

Let’s say you choose a fund that performs just as well as the market but has an MER of 2.5%. You invest $10,000 for 20 years.

Market performance: $10,000 at 7% compounded for 20 years: $38,697.

Fund performance: $10,000 at 4.5% (7-2.5) compounded for 20 years: $16,386.

You’ve indirectly lost $22,311, or about 136% to that “tiny” 2.5% fee. The longer the time, the more you lose indirectly to fees. High fees are crippling, and most people (especially starters) don’t notice them, so be careful.

“It is not necessary to do extraordinary things to get extraordinary results… By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.”

– Warren Buffett

For beginners, Burton G. Malkiel recommends diversifying to decrease risk by purchasing different Indexes or ETFS: Stocks, Bonds and REITs and by weighing them differently during the stages of your life. For starters in their early 20s, diversify, seek a no-load, low expense, broad-based index funds, and it’s advisable to make these purchases in a Tax-Free Savings Account (TFSA).

Because you’ve got much time in your 20s before retirement, Malkiel recommends consistent contributions (to a no-load fund) and that the majority of your holdings:

–(70%) be of stocks. He recommends to put one half in U.S. small cap growth stocks (no-load, low expense Index and ETFs) and the other half in international stocks, including emerging markets.

-Cash (5%) should be in money-market fund or short term bond funds.

-Real estate (10%) should consist of high quality REIT portfolio.

-The remaining bonds (15%) should contain: no-load, high grade corporate bond fund, foreign bonds, some Treasury inflation protection securities or dividend growth stocks.

Some Equity Index Funds and ETFs tickers from A Random Walk Down Wall Street:

FSTMX, SWRXX, VFIAX, VOO, VTI, IWB, TWOK, VEMAX, VTIAX.

Now as you enter your 30s, 40s and so on, the mix of stocks, bonds, real estate (REITs) and cash will change. For instance, according to Malkiel, in your 30s, your Stocks-Cash-Bonds-Real Estate allocation would be: 65%-5%-20%-10%, respectively. You would slowly move to “safer” investments as you age.

If you’re relatively new to stocks, don’t expect quick gigantic returns, especially not from Malkiel’s recommendation. This type of diversified allocation has the goal to decrease risk through exposure of broad indexes. Long term index and ETFs are made to pay off in the long term. Briefly, for starters: the takeaway would be to look out for high fees and contribute to index and ETF funds according to your age. Always do your own research.

All in all, you can find the full asset allocation by age from: A Random Walk Down Wall Street. It was an amazing book, written like no other and it sheds new light to numerous important topics such as the efficient market hypothesis (EMH), behavioural finance, random walk theory, diversification and much more. I will have a review on this book soon. Meanwhile, you can find the book here.Of course all this, JMO (just my opinion).

In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.

-J. Kenfield Morley

Disclosure: I have no positions in any of the recommended ETFs or Indexes at the date of this article. I wrote this article myself and it expresses my own opinions, I am not a financial advisor. I do not get any compensation from this, other than from Amazon Affiliate links and advertisements. On the date that this article was posted, I have no affiliation with any of the ETFs or Indexes.

The Best Investment Book for Starters

July 3, 2016May 22, 2017 / 416Investor / Leave a comment

We’re all aware of the importance of starting early and we all know the costly price of starting late. That last minute 10 page essay, that last minute “studying” (if you even call that studying anymore) before the math exam always ends up with you always asking yourself: “Why didn’t I start earlier ?”

Procrastination is a terrible habit and we’ve all been guilty of it, some more than others (I, for one, am – you are too, no need to lie). On the other hand, procrastinating on that 10 page history paper isn’t the worst of the last minute bullsh***ing. It’s when you procrastinate on more important things such as learning to invest that you will pay the costliest price.

Starting your investments early will allow you to take advantage of time; giving you the ability to ride out some mistakes and more importantly use compound interest. I cannot stress the importance of compound interest. You can check out the article about why you should start early here.The earlier you learn about investing, the earlier you can start; the earlier you make capital gains. Now, you can’t learn EVERYTHING about investing, but without a doubt you need to learn the fundamentals before even thinking of starting.

In my opinion, one of the very best investment book ever written (if not, THE best) is The Intelligent Investor by Benjamin Graham (the second investment book I’ve read). Although I strongly recommend Graham’s “investing bible” to anyone, it’s not the book of choice when people ask me what to read as their first book.

The first book I ever read, was “The Neatest Little Guide to Stock Market Investing” by Jason Kelly, and I strongly recommend it for starters as their first book. Now before, I get stoned by the crowd for thinking I’m not recommending “THE best book” first, hear me out first. When I was a beginner in investing, there would have been no way for me to fully understand and appreciate The Intelligent Investor (you need to read it a few times), had I read it first. It’s not an easy read for beginners, especially if you have no background in business. It can be intimidating, and the length can turn people off.

Let’s jump straight into it: Why “The Neatest Little Guide to Stock Market Investing” is the best book for the Jon Snows of investing (those who know nothing):

1. It’s a very easy read. It teaches you the very basics of stocks, what they are, how they work and how you can make money while owning stocks. It teaches you the basics of evaluating stocks and touches upon growth investing and value investing. Additionally, the basics on how to read stock pages.

2. It will briefly touch upon Fundamental vs Technical Analysis. You will learn the basics of fundamental stock measurements such as Dividend Yield, EPS, ROE, Net Profit Margin, etc. You’ll also learn a bit about technical analysis basic measurements such as RSI, SMA, MACD, etc.

3. It introduces you to some of the most successful investors. The highlight of this book is that it summarizes the basic points and strategies of the most successful investors, notably : Benjamin Graham, Warren Buffett, Philip Fisher, Peter Lynch, Bill Miller and William O’Neil. This allowed me to follow up on my investing journey by reading “The Intelligent Investor” which changed my life.

4. The author also gives you a list with a description of numerous resources that provide research on stocks. Furthermore, he describes a few long term strategies. He also suggests ways to get started (setting up an account) and provides a few of his very own strategies he uses/ made.

Again, I cannot stress enough the importance of starting early in your investing journey. For me, this book eased my way into the investing world; it easy to read and has the right amount of important content so I didn’t lose interest (I get bored easily). It was very well structured and the summary of the greatest investors allowed me to follow up on my learning after I finished reading the book.

It will answer most, if not all questions of the beginner investor. All in all, I’m glad it was my first book, and I’m sure you’ll enjoy it as your first investing book too. It will provide you all the information you need to start your investing journey, as it did for me, long ago. Again, like preparing for your math final: start reading (and actually learning) about investing early– not later. In the end, when you’re looking at your account, you never want to say “I wish I started earlier“, instead you want to say: “I’m glad I started early“. Remember, you can bulls**t your history paper, but don’t bulls**t with your investments. Of course, JMO (just my opinion). You can find the book here.

Why Greatness?

July 3, 2016May 22, 2017 / 416Investor / 1 Comment

From Alexander the Conqueror, to Muhammad Ali, Michael Jordan, to Warren Buffett, all these legendary stars had one thing in common, greatness. They had certain characteristics that distinguished them head and shoulders above the rest.

Everyone works hard, so why aren’t we able to achieve greatness in what we do? Firstly, you’re probably not doing the work you love. Michael Jordan and Kobe Bryant didn’t become greats because they loved money, they succeeded because they were in a line of work they loved. They weren’t forced to practice everyday, they not only wanted to- they needed to. We often attribute success to the wrong things.

The way to achieving greatness begins in your line of work, particularly the work you love. I’m not talking about a casual interest, it needs to be something you go out of your way to do, and excel in. As Steve Jobs puts it “If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on“. You need to find what you love to do, period.

But why strive for greatness? Why not just do good enough work and call it a day? If you’re satisfied with the latter then save yourself some time and read no further.

How To Start Your Journey Towards Greatness?

Jim Collins, author of the best-seller, Good to Great provides an exceptional answer to the whys and hows of greatness. To start on the hows of greatness, we go to an outstanding concept:”Level 5 Leadership”. To achieve greatness, you must become a Level 5 leader. To achieve this level, you must start with yourself. The characteristics of a great leader are honesty and modesty. In success, they always give credit, never take. When things go poorly, they look in the mirror, not around. Being this leader means that you are crazed about results and performance, you want the very best, no less and you will do absolutely any amount of work to reach it. You can start with improving yourself and climbing the ladder of leadership levels.

The End Game of Greatness

Why does achieving greatness matter? When it’s all said and done, it’s impossible to live a great life if you haven’t found meaning in it. It’s equally difficult to live a meaningful life without meaningful work, for your work will take up much of your time.

“The only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” -Steve Jobs

Perhaps in doing great work, you’ll gain that rare feeling of a job well completed, that feeling in creating something of value, something worth more than the sum of its parts. Or maybe even better, as Collin puts it:

“…you might even gain that deepest of all satisfactions: knowing that your short time here on this earth has been well spent, and that it mattered.”

-Jim Collins, Good to Great

Good to Great was exceptionally written. Collins shows that greatness is indeed attainable, and illustrates what distinguishes the best from the rest. Indeed he does outline the qualities of great leaders and provides guidelines for theses traits while analyzing a list of companies. My mentor recommended this book to me, and as he passed on his recommendation to me, I will pass it onto you. I hope you enjoy this read as much as I did, and that the knowledge you gain will better you in your business life and personal. You can start your journey towards greatness here.

Golden Life Lessons From Investing

June 23, 2016May 22, 2017 / 416Investor / Leave a comment

What are some life lessons that we can learn from investing?

TIME IS MONEY, BUT MONEY IS ALSO TIME

They say time is money. The equation goes the other way to: Money = Time. Now, other things equal, the point of money is to have financial freedom, more financial freedom derived is really just more time.

Time is on the side of a continuously improving company. Time is also on the side of a person who’s consistently improving. Make every moment count.

DON’T PREDICT YOUR FUTURE, MAKE IT

A great company can’t predict the future, but it can make it. You might not be able to know what happens in a few years, but you can control what you do today, keep your long term goals in the crosshair and day by day, struggle by struggle, you’ll get there, sooner or later.

SEEK VALUE: DON’T BE TOO QUICK TO JUDGE OTHERS

Behind every stock is a company. Most people just look at the ticker price and judge whether or not it will go up or down. Instead, read the balance sheet, look for intrinsic value, margin of safety,learn about the company. Don’t be too quick to judge a stock based on just it’s price; don’t be too quick to judge people upon first sight.

Sometimes great companies will experience turmoil, unforeseen events can shake up even the greatest companies. Just like some individuals can be shaken by events, sometimes it just takes time to see the value in someone.

In the early 1990s, aerospace company General Dynamics was in bad condition. To be precise, $600 million in debt, negative cash flow and on the verge of bankruptcy. To the surprise of many investors, it made the impossible turnaround and long story short, is one of the leading aerospace companies today.

Sometimes people are in these rough times in life, perhaps they went on a bad breakup, lost their job or are just having a bad week at work, they may seem mad or irritated at first glance, but there can always be more to the story. We’ve all experienced bad times and made mistakes and through those mistakes we learned something or two.

SURROUND YOURSELF WITH WINNERS

Ideally, in our investment portfolio, we want to hold winning positions (great companies); ride your winners and let go of your losers. In life, surround yourself with people whom you value and admire, they will better your self-development. Toxic individuals may weigh you down and slow personal growth; thats the last thing we want.

SORRY ISN’T ENOUGH

The greatest investors have made billion dollar investment mistakes; but they adjusted and learned from it. Sometimes you’re greatest stock picks will turn out to be a mistake. Don’t just be sorry. Learn from it. In life, when you make a mistake, be quick to admit it, learn from it and work on ways to improve from it. The importance here is the actions taken to correct the mistake and to prevent it from happening again.

“There’s no shame in losing money on a stock. Everyone does it. What is shameful is to hold onto a stock, or even worse, to buy more when the fundamentals are deteriorating”.

– Peter Lynch

EMOTIONS ARE JUST AS IMPORTANT AS INTELLIGENCE

Regarding long-term investing, Peter Lynch says: “Everyone has brainpower. But not everyone has the stomach for it”. The stock market is a wild animal, and Mr. Market is often moody, euphoric and irrational. Some days he’s very optimistic, others, he’s incredibly pessimistic. Intelligence may help you detect a great stock, but emotional intelligence and disciplined temperament will give you the gut to ride the rollercoaster that is the stock market.

Intelligence will no doubt allow you to strive in learning, applying and information processing, but emotional discipline will allow you to keep your head in when everyone else is losing theirs. It can help you control your anger and save you from irrational actions. Pair these two together, you have a winning combination, in investing and in life.

Quick summary:

All in all, time is the greatest asset of a great person, a great company, but for a human life, time is limited. Making money will allow you to have financial freedom, but the goal of financial freedom is ultimately to have more time. Time to spend with your loved ones, your friends, to travel and explore the essential part of life that isn’t investing. Of course, do continue to pursue your financial goals and knowledge, but don’t forget the endgame.

As always, JMO (just my opinion). Cheers.

Why You Need To Start Investing Young

June 23, 2016May 22, 2017 / 416Investor / Leave a comment

Why you need to start investing when you’re young?

The answer lies in the most useful, but most scarce (limited) resource ever: TIME (and yes, time does indeed equal money). You will take advantage of compound interest paired with time; along with the right investments, you can have a capital powerhouse.

The magic of compound interest

Compound interest does wonders for young investors in the long run (it’s not magic, it’s just basic math). Here are a few monetary examples that will get you to start investing at a young age.

-If you had invested $1000 in Berkshire Hathaway (BRK-A, Buffett’s company) in 1964, and patiently waited 50 years until 2014, you would have $18,261,630 (a whoopin’ 1,826,130% gain).

Let’s visit a few examples, with fixed variables just to show you what compound interest can do:

Let’s say you invest $8000 today, into a fund that will average out 8% a year, compounded for 33 years:

Year 1: $8,640

Year 5: $11,754.62 Year 30: $80,501.26

Year 10: $17,271.40 Year 31: $86,941.36

Year 20: $37,287.66 Year 32: $93,896.66

Year 27: $63,904.49 Year 33: $101,408.40

Year 28: $69,016.85

Let’s say instead of starting to invest when you’re 22 years old, you start later at 25.

That’s a 3 years difference. By the time you hit that $80,501.26 mark, someone who started 3 years earlier would have $101,408.40. Imagine what you can do with an extra $20,907.

Let’s go with a more eye-opening example, a fund that yields good results:

Let’s say you invest $12,000 today, and another $100 monthly into an amazing stock or fund that will yield 15% a year compounded for 23 years.

Year 1: $15,095.42 Year 19: $285,052.50

Year 5: $32,870.49 Year 20: $329,105.79

Year 10: $74,848.51 Year 21: $379,767.08

Year 15: $159,281.30 Year 22: $438,027.56

Year 17: $213,434.67 Year 23: $505,027.11

Year 18: $246,745.29

Like the previous example, instead of starting at 22, you start at 25. Within those 3 years, you’re lagging behind $175,921.32 compared to someone who started at 25. You’ll have $329,105.79 (still very good) while you could have $505,027.11 (half a million dollars-even better), if you had just started 3 years earlier.

Think about it… that difference is enough for a considerable downpayment on a condo/ house in Toronto, Canada or can be used as retirement income.

Of course, this example fixes a lot of variables and requires a good return of 15% compounded over 23 years (rare, but yes, this type of performance does indeed exist): it shows the importance of time and starting early in investments.

“A low-cost index fund is the most sensible equity investment for the great majority of investors…by periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals”.

-Warren Buffett

Now let’s say you decide to buy an index fund, as suggested by Buffett. Let’s keep it simple and select the Dow Jones Average. In 1915, it was $1,304 (inflation adjusted) and is currently sitting at around $17,360 as I’m writing this in late spring 2016. In 101 years, it went up around a total of 1,352%. That’s a multiple of about 13 times your investment. Compound interest paired with time does wonders.

If you’re worried about the market crashes and depressions, note this:

The Dow Jones Average survived the Great Depressions and countless others, 2 World Wars, more wars that followed, oil glut, the dot-com bust, the subprime mortgage crisis, etc. and will continue to survive and strive for times to come.

Mistakes

Mistakes are inevitable, they are part of the learning curve but you want to learn from it early, not late. Starting early will leave you room for mistakes. It allows you to adjust your strategies and gives you extra time to learn.

“If you love life, don’t waste your time, for time is what life is made of.”

-Bruce Lee

In summary, the examples provided have many fixed variables. The goal was to illustrate the difference even a few years can make in compound interest output. I am not implying that investing in stocks, bonds, index funds, mutual funds, etc. is the only way to take advantage of time. You may even choose to invest in your very own business.

Therefore, first investing in yourself could prove to be an invaluable investment, paired with time, your skills will grow exponentially which may provide you with valuable breakthrough ideas and investment knowledge.

All in all, start early, not late. Perhaps the earlier you start, the earlier you get to reaching your goals, and perhaps then, the more time you’ll have to enjoy your definition of a successful life. I would recommend the following books for those beginning in investing, the knowledge I have acquired from them are invaluable.

Of course, JMO (just my opinion).

For beginners, I would recommend the order as follows:

1-The Neatest Little Guide to Stock Market Investing by Jason Kelly (I read this first too).

2-The Intelligent Investor by Benjamin Graham (Life changing book)

3-One Up on Wallstreet by Peter Lynch

4-Common Stocks and Uncommon Profits by Philip A. Fisher

5-Technical Analysis of The Financial Markets by John Murphy

6-Options made Easy by Guy Cohen (Just to explore derivatives)

10 Legit Ways to Make Extra Money as a Student

June 23, 2016May 22, 2017 / 416Investor / Leave a comment

As a university student, money is tight. And, that’s fine, because you’re investing in yourself during this period. But if you want to make that extra dough for those Yeezys or that new Macbook, here are some tips that can fill those pockets. Obviously, having a part-time job or full-time will provide you with steady income.

For this list, I include things you can do that are flexible on your schedule. Also, let’s not resort to selling your personal belongings to make money (were not THAT desperate…although you should sell items that no longer have value to you).

1. Become a tutor

Let’s say you do very well in a mandatory course in college or university, congrats! You can now be a self-employed tutor. Usually mandatory business courses like intro, intermediate and even advanced finance, accounting and stats will have demand for tutors. Especially near midterm and exam time. Simply post on Kijiji.ca, Craiglists.com or even your University/ College social group. You can even put out flyers if you want, just remember to keep your expenses as low as possible. You can set your own prices and your own time. I suggest building your own clients and slowly expanding. Be mindful of your target group and set prices accordingly.

2. Sell your notes

Over the past few years numerous sites will pay you for taking notes in class. This won’t make you a tremendous amount of money, but if you attend class and take good notes, you can upload them for some extra cash. Here’s a popular site where you can upload your notes online: www.oneclass.com . If you don’t want to have your notes online, you can take notes for your university for students that are unable to attend the class, check with your department.

3. Become a background actor

This is a bit harder to do, as you do need to be employed under an acting agency. But it doesn’t really require much skill, the pay is usually good (for the amount of actual work you do); as a background actor, most of the time you just sit around the set and do nothing while getting paid anywhere from $100-$400 (depending on how long your on set for). Plus: You might be able to meet some celebrities. If you’re in Toronto, here are some agencies that you can apply to: TFX, ACTRA TORONTO , and OnSet Talent Agency .

4. Become a mystery shopper

This will require you to register with a certified mystery shopping company. Essentially, you just go to the assigned shop and go through a checklist, filling in this review-like form, of course all this is performed with discretion. Usually you have to pass a 30 minute online test about the company before being assigned the task. Do some proper research around your area to find a valid mystery shopping company. The range is $10 – $25 per task.

5. Make a website

Here is where you can focus on your passion. Make a website about something that you’re passionate about and that can translate into value for your viewers. You can start a free blog on web-hosting and template sites such as Wix, Tumblr, Weebly or WordPress, and many more with a quick online search. You can pay for your own domain name later if you want. You generate income by using advertisements or affiliate programs. One of the most popular advertisement networks is Google AdSense , and widely used affiliate program is Amazon Associates . It might take some time, but nothing of value comes easy!

6. Start your own business

This can may seem hard for some but it’s a lot easier once things are broken into smaller tasks. Let’s say you love making handmade things and you’ve always wanted to sell it. Obviously, you can be old-fashioned and go door to door, but aint nobody got time fo dat! Or you could put it online on sites like E-Bay, Amazon and Etsy. Let’s say one of your passions and skills is not a product but a service such as computer repairs, cleaning, planning, etc. You can make free posts on sites like Kijiji, Craigslist and social medias to get your service out there. All in all, try to keep expenses as low as possible. You are now “self-employed”.

7. Be a reseller

Photo from Kijiji.ca

Buy low, sell high. To do this, you need an account on Kijiji and Craigslist. This will require research in a specific field or industry. It will require some capital to start but not tremendous amount, but it might consider much research, depending on your current knowledge. For this, you just trade your way up. This example will clarify this odd job:

Let’s say you know the prices of IPod touch very well (used and new). For instance you see a post: “Selling used IPod touch, 5th gen 16 GB, great condition for $130”. You meet up in a public place with the person and the device is in great shape, a small scratch on the side, but it works like new and has a warranty on it. You buy it for $130 and you post it back online for say $170. Always buy it for the cheapest price, so you have a margin of safety. You could also buy sets of tires and rims and combine them (and shine them) to create a more valuable product for sale. Anyways you get the point: Buy low, sell high. Learn about the prices and goods you’re trying to merchant. Meet in public places and be safe when trading!

8. Sell stock photos

This is great for students who have their own camera or can get their hands on mom and dad’s camera. You don’t necessarily have to be a photography student, but you can always take pictures of stuff, backgrounds, skylines, city lights or whatever you like and post them up for sale on sites like: IStock, Dreamstime and BigStock. You can even use your IPhone or Android device if you don’t have a camera.

9. Become a cleaner

If you love cleaning and keeping things neat, this is perfect for you! This does not require any particular skill, just a bit of attention to detail and you’re golden. Buy some cleaning supplies on sale and post an ad as a cleaner or look for companies that contract cleaners for events. PS: Get some extra gloves for those once in a while extra dirty places.

10. Join study groups

You’ll see these ads all the time. They usually require a few hours but if you have nothing better to do, joining a study group will get you one step closer to those Yeezy’s you’ve always wanted. It usually involves meeting some requirements (for instance, 18-25 years old, non-smoker) and just answering a bunch of questions. I am not encouraging any of the ones where you need to take weird pills, or insert devices in your head… of course, that’s just my opinion. All in all, questions for cash, if you’ve got nothing better to do, why not?

All this is is JMO (just my opinion). Feel free to share your (legal) side hustle. Cheers!

Check out why you should start investing your money that you side hustled for here.